Public Bill Committee

[Mr Edward Leigh in the Chair]

Schedule 11  - The financial ombudsman service

Amendment proposed (this day): 191, in schedule 11, page 241, line 8, at end insert—
‘In section 234(1), after “or any class of authorised person”, insert “or any claims management company authorised under the Compensation Act 2006.”’.—(Chris Leslie.)

Question again proposed, That the amendment be made.

Christopher Leslie: Our proposition is that regulatory controls should be extended to cover claims management companies. It is important that we consider the provisions of the Bill. I accept that the Government are chewing over the extent to which claims management companies should or should not be brought within the regulatory perimeter, but so many customers are potentially losing out because unwittingly they believe that claims management companies are regulated. They are going through the process of making agreements with claims management companies and then finding that significant fees and charges are taken by them. I therefore believe that the time has come for the Bill properly to ensure that there can be at least some scrutiny and some regulatory control of those organisations by the Financial Conduct Authority in particular. I am not convinced by the Minister’s argument. We need to take these matters in hand. For those reasons, it is important to test the view of the Committee on amendment 191.

Question put, That the amendment be made.

The Committee divided: Ayes 7, Noes 9.

Question accordingly negatived.

Christopher Leslie: I beg to move amendment 166, in schedule 11, page 243, line 2, at end insert—
‘19A In paragraph 8 (guidance), at end insert “The scheme operator must consult publicly on any information, advice or guidance produced prior to publication.”.’.
We now come to the important matter of whether the Financial Ombudsman Service—[Hon. Members: “Ah!”] The hon. Member for West Suffolk has returned to the room. We won by such a close margin in that last Division; it was one of the famous victories! I am grateful to the hon. Gentleman. The tide is finally turning against the Government. But I digress. The Financial Ombudsman Service clearly has a considerable number of decisions to make on a considerable number of cases. Often, there are publications of findings and guidance that flows from those conclusions. There is a balance to be struck between, on one hand, swift processing of those arrangements, openness and transparency and, on the other hand, a proper sense of consultation with industry and consumer groups when it comes to the downstream consequences of Financial Ombudsman Service decisions.
This is a probing amendment. The aim is to get a sense of where the Government feel that the balance should be struck, because clearly there are arguments on both sides of the divide. On the one hand, the Financial Ombudsman Service publishes quite a lot of documentation to inform businesses and consumers about technical issues. Indeed, Lord Hunt, in his 2008 review, suggested comprehensive information provision and technical notes, to ensure that final decisions of the ombudsman reflect what happened in each case.
On the other hand, some trade organisations, particularly the Association of British Insurers, have specific concerns and believe that the Financial Ombudsman Service has published guidance on its approach to complaints on a wider range of topics—pet insurance, mortgage arrears, household repairs and so forth—and that it does not usually consult key stakeholders, such as industry or consumer groups, before issuing such guidance.
The organisations in question believe that it is regrettable that there is no consultation on the guidance, not least because firms are required to take ombudsman decisions into account. They are concerned that notes stand, effectively, as policy guidance, so a fuller consultative process with stakeholders would improve FOS guidance and ensure its compatibility with FCA rules and other appropriate legislation.
I accept that there is an argument on both sides of the issue, but I wanted a sense of whether the Minister thinks the right balance has been achieved between public disclosure and consultation with the industry. Can he also offer some reassurances that arrangements to gather the views of industry and consumer groups will be sufficient, and will not have any unintended detrimental impact, given the volumes involved? I am sure that he gets the point of amendment 166. It was really just to test that view.

Mark Hoban: I understand the point that the hon. Member for Nottingham East is making about guidance and I am pleased that he has made it clear that the amendment is a probing one. It is rather more widely drawn than is perhaps appropriate even for those purposes.
There are important areas in which the FOS needs to consult in advance. It is clear that it needs to consult on scheme rules before making them, and we retain the provision in the Financial Services and Markets Act 2000 for that. We have also included a requirement for the FOS to consult on its annual plan. I hope that that demonstrates that we seek to strike a good balance between ensuring that there are obligations to consult on the right material without burdensome requirements that would benefit no one.
I am not clear about the benefit of the FOS consulting in advance on publications such as technical notes and guidance, where those are simply explanations of how it will handle cases, based on decisions that the ombudsman has already taken. I have looked at one of those technical notes to understand what is in them; it is about guaranteed asset protection insurance, and is five pages long and very technical. It covers some of the information that an insurer might want, explaining what the compensation should be, and covering issues that should be considered in determining whether a policy has been mis-sold. They are fairly dry things.
The FOS is clear that it is willing to listen if industry or consumer groups want to raise issues about the technical notes, and no one in industry or in consumer groups should feel that they cannot talk to the service about them. It welcomes feedback on the documents and is willing to review the content and, if necessary, its approach to dealing with cases. If there had been a huge torrent of comment, the case for putting the notes out to consultation would be clearer, but the FOS gets little feedback on them, which suggests that there is not really an appetite for a proper consultation in the industry or among consumer groups.
I want to touch on a slightly broader point on transparency. I talked about the requirement to publish the annual report, but the Bill also provides for a new duty on the FOS to publish reports of determinations as well. That will be a step change in transparency in the relationship between FOS and its stakeholders around increasing the openness of the decision-making process. The publication of determinations will ensure that consumers and firms have a full and balanced picture of the decisions that the FOS reaches, which supports greater scrutiny and accountability. We are, I think, seeing steps to strengthen the accountability of the FOS to the industry. It is not necessary formally to consult on technical notes and guidance, but there is a facility for industry or consumer groups to provide feedback for the FOS if they wish to do so.

Christopher Leslie: That is helpful. It is useful that those in the sector who have to grapple with some of these technical guidance notes understand the Minister’s views on the extent to which there should be consultation ahead of publication. It is also useful to know that there are feedback mechanisms for industry bodies or others that want to make representations to the ombudsman service. I am content that the Minister has had an opportunity to clarify that particular matter. I, therefore, beg leave to withdraw my amendment.

Amendment, by leave withdrawn.

Question proposed, That the schedule be the Eleventh schedule to the Bill.

Christopher Leslie: The schedule focuses on the relationship between the Financial Ombudsman Service and the new regulatory bodies, and the consequential amendments to FSMA. My first question for the Minister is about the rationale behind his design. If the FCA is to be a consumer champion body that nips problems in the bud, as the hon. Member for Wyre Forest said this morning, we will be setting up a regulatory system that prevents a lot of downstream consequences. Presumably, if the FCA and the regulators do their job well, the FOS will eventually become less necessary. It will not be dealing with its current volume of work. That is the logical deduction. I assume the Minister agrees with step one.
If the Minister thinks the FOS will become less necessary, is it then possible to judge the success of the regulatory arrangements by the future volumes of work of the FOS? In other words, if the FOS becomes less and less busy, it will be a good thing, a sign of success. It will be a signal that the new regulatory architecture was properly preventing problems from occurring. If that is the case, what does the Minister anticipate the workload and expenditure of the FOS to be over the medium to long term? Has he any expectations that that downward trajectory will be particularly steep? What will be the change that flows from the new regulatory arrangements that are in place? Will the Minister give us a sense of the scale of what we might expect in future?

Mark Garnier: Actually, I was referring to the Financial Services Compensation Scheme and the reduction of costs. I was not necessarily making the point that the hon. Gentleman said.

Christopher Leslie: That is true, but in a sense they are two sides of the same coin. As well as less compensation being required, we would also expect to see fewer complaints. That is my assumption.
My second point concerns the memorandums of understanding between the various bodies—in this case the FCA and the Financial Ombudsman Service. As they are not outlined in the Bill and are only in draft form, it is difficult properly to scrutinise these rather amorphous documents. Can the Minister assure us that the work of the FOS will absolutely complement and add value to the work of the FCA, and that there will not be duplication or tension between them? There are some areas where tension or conflict might occur. Those are my concerns about schedule 11 but, by and large, we can see the need for it.

Mark Hoban: The hon. Gentleman is tempting me to gaze into a crystal ball and to try to plot the future for the Financial Ombudsman Service. We must recognise that it deals with a wide variety of individual claims, some of which are triggered by products. This morning, we discussed the fact that last year the FOS received 105,000 complaints about payment protection insurance. Clearly, a more proactive regulator should be in a position to tackle something such as PPI earlier, and therefore reduce the volume of complaints about a particular product. However, we are not in a zero failure regime, and there will still be product failures, and disagreements between customers and product providers that will not be resolved by discussion between them. The work load will remain.
One of the best ways of reducing the level of the ombudsman’s work would be for financial service providers to take complaints more seriously. Complainants go to the FOS when they have exhausted the provider’s complaints procedure. There has been a suspicion that one or two providers have outsourced their complaints process to the FOS. Its publication of various statistics on complaints has been helpful, and throws a spotlight on product providers and the volume of complaints. The more that product providers handle complaints internally and deal with them satisfactorily, the less demand there will be for referral to the FOS. A number of different factors will drive the volume of complaints to the FOS, but I am clear about its role.
On the hon. Gentleman’s second point, the FOS exists as an alternative dispute resolution body; it is not a quasi-regulator. Yes, it must co-operate with the FCA, but it is there to handle individual disputes. A broader issue that we are tackling—we will come to this in clause 40—is to try to deal more effectively when complaints about a particular product of a particular firm becomes a series of complaints about the same product to one or more firms: in other words, mass detriment. Clause 40 deals with ways of improving that process so that the FOS remains focused on its role of dealing with individual complaints.
To strengthen the relationship between the FOS and the FCA, proposed new section 232A imposes a duty on the FOS
“to provide information to FCA”
that is relevant to
“one or more of the FCA’s operational objectives”,
and imposes a reciprocal duty on the FCA to take that information into account.
The Bill tightens up the relationship between the FCA and the FOS, and the memorandum of understanding is an important part of that relationship. I am very clear that the FOS will continue to be a place to resolve individual complaints, and not a quasi-regulator. I hope those answers resolve the hon. Gentleman’s concerns.

Question put and agreed to.

Schedule 11 accordingly agreed to.

Clause 37  - Lloyd’s

Mark Hoban: I beg to move amendment 97, in clause37,page122,line49,leave out ‘PRA-authorised persons’ and insert
‘the Society, and the members of the Society, taken together’.
Amendment 97 corrects a minor error in the clause relating to Lloyd’s by aligning the approach taken to the cases on which the PRA need not consult on a proposed direction under section 316.

Amendment 97 agreed to.

Question proposed, That the clause, as amended, stand part of the Bill.

Christopher Leslie: Clause 37 deals with changes to the regulation of Lloyd’s of London brought about by the changes to the regulatory regime. It deals mostly with the implications of the changes to the FSMA provisions. Many Members will be familiar with the difficulties that Lloyd’s have encountered in the past, especially after the extreme losses in the 1980s. It is worth taking time to look at particular circumstances and the court cases against Lloyd’s by various consortia of names, in order to assess whether the provisions in the 2000 Act have been sufficiently effective in preventing further difficulties.
Presumably, the Minister is broadly content with the framing of part 19 of the FSMA arrangements. Obviously, there are changes regarding the responsibilities that various regulators will have, but I assume that he feels that the regime is effective. I want to make a couple of points on some of the detail. It is curious that clause 37 seeks to split the regulation of Lloyd’s between the PRA and the FCA. A part of me is slightly anxious about having two regulatory bodies scrutinising one organisation in this way. The PRA will capture the micro-prudential issues, and presumably the FCA will capture the conduct issues.
The organisation, the market and the syndicates at Lloyd’s are obviously not split into neat micro-prudential and conduct arrangements, so I am slightly nervous about the potential confusion that might arise regarding the two separate organisations and their roles in relation to a unique institution. Can the Minister reassure the Committee about having two split regulatory bodies for Lloyd’s of London? Is he relaxed about that? I am sure he will say that he does not think there is a problem, but he can understand why some of us might have anxieties.
Most of the clause replaces the word “authority” with “regulator”. We have changes downstream as the legislation splits the responsibilities between the PRA and the FCA. The bulk of clause 37 is specifically about the role of the PRA in relation to the regulation of Lloyd’s. Where will the FCA’s responsibilities end in respect of Lloyd’s activities, and where will the PRA’s begin? How do we draw that line in the insurance market arrangements? It is a little confusing, and hard to see how the regulators will work with one another. How will Lloyd’s know which elements of its activities will fall under the PRA’s responsibilities and which will fall under the FCA’s? I would be grateful if the Minister gave the Committee an insight into the architecture within Lloyd’s, and say which elements will not be covered by those two regulators.

Mark Hoban: On one level, the treatment of Lloyd’s within the regulatory framework is an exception, although on another it proceeds along the same lines as the regulation of any financial services business. The role of the PRA in relation to a general insurer is to look at its solvency and at how it manages risk on its balance sheet, but the sale of insurance to policy holders is a conduct issue and therefore regulated by the FCA. Lloyd’s is not dissimilar; it is an insurance market, so its solvency is regulated by the PRA and its conduct issues by the FCA.

Fabian Hamilton: I accept what the Minister is saying, but does he agree that Lloyd’s is exceptional and very different from a general run-of-the-mill insurer because of the involvement of the names and the syndicates, which perhaps makes it a little more complicated to regulate?

Mark Hoban: I do not dispute that that makes it more complicated to regulate, but we should not avoid the fact that one part of the regulation of Lloyd’s concerns solvency, while another is about how the market conducts itself and its business. Members of Lloyd’s, including names, are not authorised persons in FSMA unless they carry out other regulated activities, and that is a distinction. Professionals who enter into insurance contracts on behalf of names, and who manage their risks, are authorised in the same way as other financial services firms. In part, the distinction is about how Lloyd’s raises its capital, because that capital is provided by the members or names. Provision of capital is not an authorised activity, although the work of managing agents and the way that risks are placed involves traditional insurance business, which is phenomenally successful. That is one of the reasons why the UK has the third largest insurance market in the world and the largest in Europe.
Lloyd’s is very successful, and because of that exceptionality it has a particular regime that is set out in part 19 of FSMA. That does not mean, however, that it should be treated as so different that the normal division between prudential and conduct issues does not apply to it or its operations. I believe that the regime is effective and proportionate, and we work closely with Lloyd’s on these matters. I know that the shadow Chancellor worked closely with Lloyd’s when he was Minister with responsibility for the City, and that led to some reforms to the governance of the market. Lloyd’s can be accommodated within the framework, although some complications require it to have a separate part of the Bill.

Fabian Hamilton: I am grateful for the Minister’s response, but I want to examine more closely some of the things that concerned me when I read the clause. As my hon. Friend the Member for Nottingham East made clear, clause 37 amends sections 315 and 316 of FSMA 2000 to split the regulation of Lloyd’s between the PRA and the FCA, and the Minister has made clear his belief that that split regulation will be just as effective for Lloyd’s as for every other financial service.
Will the Minister clarify proposed new subsection (7)(c) which states that
“if it was required by subsection (1)(b) to consult the other regulator and proposes to give a direction which differs from the draft published under subsection (1) in a way which is, in the opinion of the regulator, significant, it must again consult the other regulator.”?
I worry that there may be some confusion about which regulator is responsible for which part, and who is consulting whom. Perhaps the Minister will clarify that point.
Reference has been made to scandals, or at least the problems—let us put it that way—of Lloyd’s in the 1980s. I am privileged to represent a few constituents who were stung, if I can use that term, in the 1980s when they became names at Lloyd’s, following a massive call on the names at the time. New names were not informed that they would be called on almost immediately because the previous several years had returned massive profits to the existing names. As the Minister will know, that resulted in a lengthy court case between the different consortia and syndicates of names, which was settled only a few years ago. That left a bad taste in the mouths of many who were quite happy to act as names at the time, but felt they had not been told the truth back then.
FSMA 2000 aimed to ensure that the regulatory regime did not allow that situation to occur again. Was the Minister satisfied that the regulatory regime worked? In spite of all he has said this afternoon, is he satisfied that the split between the PRA and the FCA will not cause further confusion? I refer again to the paragraph I have just read. As I was reading it—I am not a lawyer—it seemed that there could be some confusion or passing the buck between the PRA and the FCA in the case of Lloyd’s. I would be grateful if the Minister clarified that.

Mark Hoban: I do not think there is confusion in many people’s minds, apart from the hon. Gentleman’s. We have gone through the reform with Lloyd’s. Although there are exceptions to Lloyd’s and areas where it has a bespoke regime, the same principles apply to Lloyd’s as to any other financial services business. In subsection (6), which amends section 318 of FSMA, proposed new subsection (3A) towards the bottom of page 121 says that a direction under subsection (1) may be given by the FCA in pursuit of its operational objectives, or may be given by the PRA in relation to its general objective, so the authority for the direction is clear. If the PRA issues a direction, it must consult the FCA. If the FCA gives the direction, it must consult the PRA. That is relatively straightforward. There is a danger of the hon. Gentleman creating confusion where there is clarity, as there is in so many other areas of the Bill.

Question put and agreed to.

Clause 37, as amended, accordingly ordered to stand part of the Bill.

Clause 38 ordered to stand part of the Bill.

Schedule 12  - Amendments of Parts 11 and 23 of FSMA 2000

Christopher Leslie: I beg to move amendment 88,in schedule 12, page244,line40, at end insert—
‘In section 165A after subsection (10) at end insert—
‘(11) Data Collection
(a) The PRA should require the submission of reports from any PRA-authorised person for the purpose of assessing the extent to which a financial activity or financial market in which the PRA-authorised person participates may pose a threat to financial stability in accordance with the PRA’s general objective. The PRA shall collect, in a manner determined by the PRA and in consultation with the FPC, financial transaction data and position data from PRA-authorised person companies.
(b) For the purposes of (a)—
(i) financial transaction data shall mean data pertaining to the structure and legal description of a financial contract, with sufficient detail to describe the rights and obligations between counterparties and make possible an independent valuation; and
(ii) position data shall mean data pertaining to data on financial assets or liabilities held on the balance sheet of a financial company, where positions are created or changed by the execution of a financial transaction and which includes information that identifies counterparties, the valuation by the financial company of the position, and information that makes possible an independent valuation of the position.
(c) The FCA shall assist the PRA in accordance with Clause 3D to ensure that the PRA is able to exercise its function as described in (a);
(i) To facilitate the effective collection of data, the PRA should prepare and publish, in a manner that is easily accessible to the public and in the form of a summary or collection of information so framed that it is not possible to ascertain from it information relating to any particular person—
(ii) Where possible, the PRA shall co-operate with foreign regulators to the extent required to collect relevant information on PRA-authorised persons already collected by those foreign regulators;
(a) The PRA shall develop and maintain sufficient resources to review the collection of data referred to in (a) above in order to—
(i) develop and maintain metrics and reporting systems for risks to the financial stability of the United Kingdom;
(ii) evaluate stress tests or other stability-related evaluations of financial entities overseen;
(iii) investigate disruptions and failures in the financial markets;
(iv) conduct studies on the impact of policies relating to systemic risk;
(v) promote best practices for financial risk management to PRA-authorised persons.
(b) The PRA shall publish a report which compiles the data collected in accordance with (a) on a periodic basis as determined by the PRA, which shall be—
(i) made available to the public in an easily accessible medium; and
(ii) in the form of a summary or collection of information so framed that it is not possible to ascertain from it information relating to any particular person.”.’.
I did not think it necessary to talk about the provision in clause 38 that essentially facilitates the placing of schedule 12 provisions in legislation. However, we are now talking about significant changes, and I do not think that schedule 12 goes as far as it ought in relation to the shortcomings that the regulators might experience in gathering data, improving transparency and ensuring the timely disclosure of information about financial transactions in our financial system.
The Committee will see that amendment 88 is quite considerable. It has been drafted so that we can properly try to work with the Government and take the opportunity to create a new set of responsibilities for the Bank of England FPC in particular but also, in the new regulatory environment, to make the improvements necessary to give effect to all the new superstructure that the Minister is putting in place.
Ultimately, the creation of new structures will not in itself ensure that the regulators do a good job. Simultaneously, the regulators will need other tools. No one disputes the need to improve systemic oversight and the sustainability of the financial services sector, but the success of the prudential regulation process will rest on the information and analytical capabilities available to those charged with forecasting potential crises before they hit. That is a difficult job, which the Minister might characterise as crystal ball gazing, but that is the final purpose of what he is doing by moving to a more proactive regulatory arrangement. It ought to be possible, therefore, to give the new regulators the powers to demand transaction-level transparency from the companies that they regulate.
In the equivalent American regulatory change, the Dodd-Frank Act, the regulators were given significant powers through something called the Office of Financial Research. We too need to take that level of rigour to heart. Members of the Committee might recall how, back in October 2007, the takeover of ABN AMRO by the Royal Bank of Scotland was, sadly, not prevented by the regulator, even though, as we now know, it noted the lack of information available to it. It felt that the public nature of the deal, despite its ignorance of the information, meant in essence that no intervention was necessary, but we now know the lessons to be learned from that situation. [Interruption.]

Edward Leigh: Order. I deplore sedentary interventions. If the Whip wishes to speak, he should stand up.

Christopher Leslie: Luckily, I did not hear what the Whip said, and I do not know whether I will get the joke when I read it in Hansard. Perhaps I missed it.
My point was that 11 months after that ABN AMRO situation, the Barclays buy-out of the then bankrupt Lehman Brothers was prevented, because the regulator felt that ignorance of what was going on was sufficient to stop the transaction. It then got worried, and the rest is history. Now we know that lack of information for regulators is not excusable; we have to ensure improved data collection standards for the regulator. That does not have to be a burden; investment banks already report most of their financial transactions through centralised clearing operations, often in international contexts, so the regulator should therefore have access to such information.
If the Bill is to make our regulators fit for the 21st century, we need to give them a proper map or toolkit relating to the risks and where they are concentrated in our financial system. The Americans have begun that process; we need to ensure that the Bank of England has a data centre to match those capabilities. To do that in the UK would require the creation of standardised databases of counterparties and financial instruments; reports could then be made to the Bank of England’s data centre in real time, as and when each transaction takes place. The value of standardised databases to the City, not only the regulators, should not be underestimated. They would facilitate a much better consolidation of risk management within firms, and allow further, much-needed innovation. That knowledge is surely essential not only for the regulator, but for banking executives.
Obviously, we all hope that there will not be a crisis on the scale that we experienced in 2008 and 2009, but the post-mortem that followed those events should teach us the right lessons. Not all banks lent recklessly, but the problem when the crisis arrived was that the regulator could not adequately discern the neglectful banks or guarantee which banks were acting sensibly. Instead, the Government had little choice but to protect the whole system. Next time—hopefully there will not be a next time—with regulators informed and armed with the measure of each player in the system, there should not be a reward for failure. At times of collapse, the regulator could have more clear information on which investment banks had been reckless; there would then be no excuse when it came to bailing out losers.
In February 2007, the then chief executive of the Royal Bank of Scotland told shareholders that the bank had successfully avoided sub-prime lending. Unknown to shareholders—this was only revealed in the FSA’s report on the demise of RBS—the bank had decided in June 2006, eight months prior to reassuring the market, that it would expand into the high-risk structured credit business of US sub-prime. It became so dominant that its success was recognised with an award—it was north American securitisation bank of the year 2007.
Although the erosion of RBS’s capital is often blamed on ABN’s toxic portfolio, of the £7.8 billion it lost in 2008, £5.5 billion was lost in the old RBS, and £2.3 billion in ABN. Regardless of whether RBS was too big, its business too complex or it had people who just did not understand the products they were dealing with, we cannot continue with such private information remaining hidden within the banks. By creating a data centre in the Bank of England, as envisaged by the amendment, we should produce a regulatory regime that is fit for purpose. Without it, we are worried that we might unintentionally be leaving our regulators blind, and regulating the 21st century financial system with 20th century tools.
We are not discussing the subject in isolation. Andy Haldane from the Bank of England made a speech yesterday in New York on similar issues, and said:
“With financial data captured in a homogenous fashion across financial firms, the stage would be set for mapping much more comprehensively the contours of the financial world…Technologically, there is no reason why tracking the financial web should be any more complex than tracking global supply chains or the web. Monitoring global flows of funds, as they ebb and flow, should be possible in close to real time.”
He went on to say that
“risk warnings, like weather warnings, would form part of the regulatory toolkit. So too would stress-tests of the impact of extreme financial events on the functioning of the global financial web.”

Matthew Hancock: If the Bank of England is across those questions, as is evidenced by Mr Haldane’s speech, why should we have to write such a provision into the Bill?

Christopher Leslie: Currently, the Bank of England is not across such issues. I am talking about a suggestion by one person in the Bank of England. It is not yet the policy of the Bank of England to develop a data centre. Clearly, there would be legislative implications if we mirrored the American arrangements, and as we are in the middle of discussing the Financial Services Bill, it is worth taking the opportunity to ensure that the necessary legislative provisions are in place to allow the Bank to create a data centre. If we do not put the necessary caveats in the Bill, there is a danger that we will not facilitate the Bank’s ability to develop such a centre.

Mark Garnier: Does the hon. Gentleman have an assessment of the cost implications of the measure?

Christopher Leslie: As I say, given that many centralised clearing arrangements already require a certain degree of information to be made available, albeit on a private market basis, the disclosure issues would not necessarily be particularly burdensome, but costs would probably be involved. As many of our globally oriented financial firms already have to disclose some of the data in an American context to the Office of Financial Research, a lot of work will have already been done to allow their systems to facilitate that. Reading that work across to a British context would not be particularly difficult.

Sheila Gilmore: Will my hon. Friend comment on the interventions that have been made? On the one hand, it was suggested that we would not need to add such a measure to the Bill, because the changes would be happening anyway. If it will happen anyway, it will have a cost. It will either happen or not.

Christopher Leslie: Quite. The quasi-Minister in this Committee has some insight into those questions, but ultimately only the Minister himself can tell us whether the Government think that data collection will happen anyway, which makes it entirely possible that they will resist the proposal.
The point is that we think the regulators need data capabilities. We should learn lessons not only from the British experience, but from how other jurisdictions, particularly the Americans, are developing their capabilities. There is an ongoing discussion; it is not settled that the Bank of England wants to move in that direction. As legislators, we should suggest that they take the opportunity to do so.
Government Members will embrace the fact that various European directives, such as the markets in financial instruments directive, are coming down the track, and will create disclosure requirements. However, the MIFID arrangement is probably two or three years away. It is better to take the opportunity now to design systems that are appropriate to our British approach, and that can put us on the crest of the wave, rather than have us following in the wake of European provisions. I hope that the Minister will accept our amendment with enthusiasm.

Edward Leigh: I call—Chris Evans; sorry.

Chris Evans: I have such a high profile, Mr Leigh. Thank you so much. I have sat here for three weeks, and you still cannot remember my name.
I support the amendment. I take a holistic approach to the Bill: what are we here for? The Bill is about avoiding another financial collapse. How do we achieve that? I think of what the former Chancellor said—that it was not that banks were too big to fail, but that they were too interconnected to fail.
People might look at the amendment and say, “Oh well, we are not going to monitor financial transactions.” They are doing it in America already, and the vast majority of banks deal with American banks anyway. If we are to look at systematic figures in future, we need information, so we must track financial transactions.
I shall use an example that my hon. Friend the Member for Nottingham East touched on. In the case of Lehman Brothers, the regulator said there were problems. Barclays considered taking over Lehman’s before it collapsed, and because of time or other considerations, our regulator said it was okay. That might have been a disaster, because we did not have the information to hand. Four years after the major collapse, we still do not have it. If we do not have information, how will we know whether there are problems in the system and how can they be rectified? Those are important questions that need to be answered. The system is already set up in America, so why do we not have the same one here?
I echo what my hon. Friend said, and hope that when the Minister responds he acknowledges the amendment’s importance. There must be some tracking of financial information. I shall leave it there and await his words of wisdom.

Sheila Gilmore: If the public in general think anything about the Bill—I am sure they do, on a daily basis—they will want to be satisfied that preventive measures that are as thorough as possible are in place. We all agree that that should not be a complex process of issuing reports later in the day to say what should have happened. It may be impossible to catch everything, but we hope to be far better at seeing what is coming. The proposal goes some way towards helping us to do that. That is what the public want.
I shall be interested to hear whether the Minister says, “Well, actually, this is what we will be doing anyway, so there’s no need to put the measure in the Bill,” or whether he thinks the change could be achieved adequately by others. Part of the problem when it comes to the disclosure and gathering of information by individual institutions, companies and organisations—within a competitive framework, naturally—is that the information is always for their eyes only; sometimes, it appears, it is not even for their shareholders.
Part of the amendment is about maintaining sufficient resources to review the collection of data. If the PRA is not sufficiently resourced to do that, and does not have the technical or financial expertise or the people to analyse and understand the information coming in, there will probably not be much point in collecting data, because it will simply sit somewhere without someone having an eye on what is happening. The resource part is particularly important. That may be a separate issue from whether there should be provision for a data centre in the Bill, but if we put that part of the amendment in the schedule, there would be a clear guarantee to the public that the matter will be looked at properly.

Mark Hoban: I always think that it is important to have lots of up-to-date and timely information, and it is important for the regulator to have that; no one would dispute that. However, I wonder whether hon. Members speaking in support of the amendment have timely and up-to-date information themselves. The hon. Member for Nottingham East said that when MIFID comes into force, it might cover the proposal, but MIFID I is already in force, and article 25(5) of the directive states:
“Member States shall provide for the reports to be made to the competent authority either by the investment firm itself, a third party acting on its behalf or by a trade-matching or reporting system approved by the competent authority or by the regulated market or MTF through whose systems the transaction was completed.”
Transaction reporting is already in place; to say that it is not is erroneous. The Bill also gives regulators the power to require firms to hold their data in specific formats if the regulator judges that to be an appropriate and proportionate way of meeting the objective. I know that the amendment was proposed by Intellect, a trade body that has interests in data standards—that is not a problem—but the reality is that the regulators already have the power to collect that information in a format that they deem appropriate. It has to be proportionate to meeting their regulatory objectives.
The hon. Gentleman has prayed in aid of the Office of Financial Research in the US, but let us not forget that the US system is different from the UK system. The OFR has been set up to collect information on behalf of the US Financial Stability Oversight Council. That is not necessary in the UK, because the regulators already have the power to collect the data in the format that they request. The amendment is redundant, because we are talking about things that are already required in MIFID and in place in FSMA; the power is there for the regulators to collect the data in the format in which they request it.

Christopher Leslie: The Minister has said that the powers are already there, which I think is a moot point. Whether the powers are there or not, are regulators actually doing this? Is the Bank of England establishing a data centre with sufficient rigour?

Mark Hoban: The issue is that the regulators need to identify what information they need to assess risk and to determine how they gather that information. Simply having a huge data centre is not necessarily the solution to the problem. If the Bank of England thinks that it is necessary, it has the powers and will use the PRA and the FCA to collect those data. If it is unhappy with the data being collected, it has the power to collect that information directly. To pretend that no powers exist is wrong, because the powers exist in both domestic and European law and the regulators need to do what is right.
The hon. Gentleman talked about collecting and publishing real-time data, but some of the data that he wants to collect, such as positions in commodity markets and stock exchanges, is commercially sensitive. Firms would be concerned about providing those data publicly on a real-time basis, because it could affect their ability to trade profitably. [Interruption.] The hon. Gentleman talked about it being publicly available. The powers are there.
I do not think the amendment is necessary. It does not reflect the existing powers of the regulator to collect the data or the obligations imposed on firms to provide those data. It is unnecessary and I suggest that the hon. Gentleman withdraw it.

Christopher Leslie: I am not very satisfied with that explanation. The Minister says that all these powers are already universally provided for in the Bill, but the situation is not as clear cut as that. If he had said that the Government thought there were potential restrictions or inhibitions on the regulators in obtaining the data and that the amendment needed to be improved, I would have been interested to hear how. But no, it was a simple, chuck-it-in-the-bin response from the Minister. If all these suggestions were erroneous then eminent figures in the Bank of England such as Andy Haldane would not be pushing the boundaries and making them.
The Minister says that all the powers are there in theory, which I dispute, but the regulators are not yet in a position properly to capture the activity. We could have debated the question about publicly available, real-time data versus data that would simply have been available to the regulator. There is an argument about that and I can accept the point about commercial sensitivity, but surely the regulators themselves ought to have access to some of that information.
We have devoted an inordinate amount of detail and legislative space to setting up structures of organisations with various boards, chief executives and governors, but the Minister is a bit complacent about giving them the tools to keep a close eye on what is happening in the market. That is a pity, and I feel that I need to press the amendment to a vote.

Question put, That the amendment be made.

The Committee divided: Ayes 8, Noes 10.

Question accordingly negatived.

Question proposed, That the schedule be the Twelfth schedule to the Bill.

Christopher Leslie: We have had a debate on data collection and retrieving information. Schedule 12 largely relates to that. I should have mentioned in the previous debate that the pre-legislative scrutiny Committee for this Bill also had anxieties about whether there was sufficient collection and analysis capability of data. It recommended that the Bill should be amended to place a duty on the Bank of England, or the PRA, to develop information standards for the financial services sector and to report regularly on those. Obviously, the Government rejected that suggestion. But I have a couple of points specifically relating to schedule 12.
A number of provisions in the Bill allow regulators not just to approve but to make appointments of skilled persons to undertake particular reporting arrangements. My first question relates to the fact that, obviously, many of those changes are welcome, but many of those skilled persons will come from the big four professional services firms. Will the Minister assure us that provisions will ensure that there will be no systemic reliance on those large firms and that due care will be taken to appoint the most qualified applicants?
The Bill also provides that evidence can be seized by the regulators if a warrant is issued in proceedings against particular persons. New section 176A(1) to FSMA contains arrangements for keeping evidence for as long as necessary. That may be perfectly sensible, but I think that that measure replaces the provision in section 176(8) of FSMA, which refers to a three-month retention period.
Will the Minister clarify the time periods involved? As I read through the Bill, I wondered whether there was a discrepancy between allowing the regulator sufficient latitude and ensuring that they have as long as necessary before returning evidence, because other provisions state a time limit on retention, which may be restrictive.

Mark Hoban: Let me deal with the issue of skilled persons. The hon. Gentleman hit the nail on the head when he said that the best-qualified person should be appointed. That is what we would all want to see, and that is the approach that the FCA and the PRA not only should follow, but will follow. The fact that the large law firms may have a concentration of people means that they do have the best people, but they should not be the automatic go-to place in these circumstances. We should be looking for the best possible people to be appointed as skilled persons.
The hon. Gentleman referred to new section 176A, which is inserted into FSMA by paragraph 15 of schedule 12 and which provides for original documents seized under warrant to be retained for as long as possible, but also for the owner to be able to apply for a court order requiring their return. As the hon. Gentleman rightly points out, that proposal does replace the three-month limit on retention set out in section 176(8) of FSMA. However, we are aligning the powers in FSMA with those under section 22 of the Police and Criminal Evidence Act 1984, which enables evidence seized under warrant to be retained for as long as necessary.

Schedule 12 agreed to.

Clause 39  - Auditors and actuaries

Question proposed, That the clause stand part of the Bill.

Christopher Leslie: Clause 39 simply introduces schedule 13, and I have just realised that most of my comments relate to the schedule, so I will be quiet at this point.

Question put and agreed to.

Clause 39 accordingly ordered to stand part of the Bill.

Schedule 13  - Auditors and actuaries

Question proposed, That this schedule be the thirteenth schedule to the Bill.

Christopher Leslie: This is a relatively uncontroversial part of the Bill, but I have a couple of questions for the Minister, particularly about the disqualification of auditors and actuaries in certain circumstances. Obviously, they can be disqualified, fines can be imposed on them, they can be publicly censured and so on. It is important that there should be adequate powers for disciplinary measures in this particular schedule.
However, my understanding is that the Financial Reporting Council, via the Accountancy and Actuarial Discipline Board—I mention that body just in case you were not aware of it, Mr Leigh—and its accountancy scheme and actuarial scheme, already has the powers to make sanctions, including reprimands, suspensions, expulsions, exclusions, fines, licence withdrawals and so forth.
The point has been made in correspondence with me that there are concerns that auditors and actuaries potentially face double jeopardy, as they could face the possibility of being fined or censured twice: once by the provisions under the FRC arrangements; and once under the provisions of the Prudential Regulation Authority’s or Financial Conduct Authority’s disciplinary arrangements. The Institute and Faculty of Actuaries has raised its concerns about that dual regulation. It is worried, and believes that simple reference to its own disciplinary scheme or to the AADB scheme might be a more proportionate and appropriate response.
I am not sure what the Minister’s logic is for the changes that he is making in the Bill. Is it his intention that there should be this double sanction capability for potentially the same alleged failing? If that is the case, can he explain what is being done to co-ordinate the imposition of sanctions between the relevant regulatory authorities—in particular, the new regulators and the FRC? I am sure that he will understand the point that I am making.

Mark Hoban: Indeed I do. As I am a member of the Institute of Chartered Accountants in England and Wales, I am aware of these disciplinary structures, although I hasten to add that they have never been applied to me.
The issue here is that the FCA will make rules that impose duties that go significantly beyond the normal duties of actuaries and auditors, and it is those additional rules that will need to be enforced. In particular, the FCA will make rules requiring auditors to prepare client asset reports, giving the auditor’s opinion on the compliance with the FCA’s client asset regime.
This is a very specialised area. It is an area where the FCA will need to be sure that it can take disciplinary action when rules have been breached. The accounting and actuarial professional bodies approach matters from a general perspective of professional competence, and the FRC will take disciplinary cases only where a strict public interest test is satisfied. So it is important that the FCA has the necessary powers to enforce the rules that it makes without having to rely on the other bodies.
Given that the rules will go beyond the normal duties imposed on professionals, particularly auditors, it is right to have the right regime in place. It is also right to have a suite of proportionate sanctions in place; it is not in place under the existing regime. So I think that we have struck the right balance that will ensure that these very important rules, which help to safeguard clients’ assets and money, are enforceable when they are breached by accountants.

Christopher Leslie: I am sure that the Minister’s logic has some sense to it, but I am anxious that we should not find two organisations simultaneously using disciplinary powers and arrangements, not least because sometimes one will have to stop while the other tries to make its findings.
The Minister says that the existing AADB has a public interest threshold test of some sort or other before its proceedings are triggered. Presumably that is something that would also exist for the new regulators that he is creating. Does he envisage that there are particular categories of failure that will fall within the new disciplinary arrangements and that will not fall within the AADB scheme?
Is there a schema whereby it is possible to draw together the arrangements, so that certain categories of offence fall within one set of arrangements and other categories fall within the other? The Minister will understand why I am anxious about the same misdemeanour or failing being explored by two different bodies simultaneously.

Mark Hoban: In a sense, this is not anything new, because the existing Act—the Financial Services and Markets Act 2000—actually gives sanctions for the FSA to use when auditors breach the client money rules. The existing sanctions, which operate within the same framework, are limited to disqualification of a whole firm. The schedule introduces a wider range of sanctions that are more proportionate and more likely to stick. The sanctions are more likely to be used and be a deterrent.
In a sense, the overlap—if overlap is the right word—between the existing professional bodies and the AADB already exists. There is nothing novel in that. Importantly, where auditors breach the FCA’s tight money rules, a new proportionate sanction will be in place to penalise that breach, which is what we want.

Christopher Leslie: I apologise for labouring the point, but is this not a classic example of where some sort of memorandum of understanding might be necessary? The Minister is creating all these new regulators, but surely some sort of memorandum of understanding might be necessary so that, in circumstances in which their jurisdictions do not apply or where there is overlap, organisations can work together on understanding and co-ordination. I worry that he is not making any effort to ensure that the matter is properly co-ordinated.

Mark Hoban: I do not feel that it is incumbent on me to mediate on every single point at which one regulator rubs up against somebody else, otherwise I would spend all my time doing that. By and large, these arrangements are already in place. As I said, the difference is in the range of sanctions available to the FCA. The FCA and FRC already work together closely, which we discussed many sittings ago. I do not think the provisions are particularly novel, and there is no need for the Bill to include an MOU, or anything like that. In schedule 13 we are trying to introduce a wider range of sanctions to address rule breaches.

Mark Durkan: I told the Committee last week that I have belatedly given up amendments for Lent, but Members might see that I have tabled some starred amendments, which qualify as alcohol-free. I will not directly address those amendments, some of which reflect issues raised by my hon. Friend the Member for Nottingham East.
The Minister has addressed why the schedule does not specifically refer to the work of the Financial Reporting Council or recognised supervisory bodies and the class of sanctions they may apply, as opposed to those provided for by the schedule. He may want to reflect on whether the schedule should at least acknowledge or refer to the potential interface between the measures available to the FCA and PRA and the work of the FRC and recognised supervisory bodies. Saying that the interface might emerge outside the Bill leaves many people with the fear that they potentially face double jeopardy or serious confusion on which regime they fall under. Later in the Bill’s passage, the Minister may want to reflect on whether amendments should be made to allow the FCA and PRA either to refer to the recognised supervisory bodies or the Financial Reporting Council, or, in some cases, to take reference from them by providing for that recognised interface. That would ensure that there is neither double jeopardy and double penalties nor misunderstandings and gaps between the two. Something in the purview of one body could be fully complemented by the purview of another body, and there could be circumstances in which there ends up being a gap. Due reference would be helpful.
There is a danger not only of double jeopardy but that the existing arrangements for professionals are somehow sidestepped, on the one hand, or usurped, on the other hand, by these provisions. We as Parliament, when we are introducing this mandate—this hit—have the right to say that we want the provision to be more balanced and more precise.
Another dimension I would like the Minister to address—later in the Bill’s proceedings, if not now, due to time constraints—is the potential cost of the penalties that the schedule provides for. The powers relating to penalties mean that, at some point, a penalty framework will have to be produced. There are no terms of reference for the boundaries of that framework, and some people will be concerned about over-burdensome arrangements, as well as the burdensome amounts that could be charged. It is important to reflect on the measure and proportionality of penalties. We as legislators cannot just provide for them, in an open-ended way, without having regard to their measure and proportionality in practice, and particularly the impact that they could have on the key professionals affected.
At some point, I would like to hear more from the Minister on the terms of reference for the penalty framework. The hon. Member for Nottingham East referred to work currently being undertaken at the Financial Reporting Council, which is undergoing a restructuring.

Mark Hoban: The reality is that the FRC tends not to take on the specialised cases of breaches of client asset rules, because it lacks the resources to do so. It tends to fall back to the FCA, or currently, the FSA. First, the issue of double jeopardy goes against the principle of proportionality in section 3B and secondly, we need to recognise that the FRC tends not to handle such cases.

Mark Durkan: I take the Minister’s point and he is obviously pleased with it, because he seems to be doing a facial lap of honour. He has said that the FRC “tends not to”, but where such references are made, if the FRC will hand those matters over or leave them to the regulator, that can be sensibly provided for in the schedule, rather than saying “We know” or “We presume” it will happen just because it tends to. The fact is that under the schedule, the PRA and the FCA have a specific menu of actions that they can perform in the event of such cases. None of those involve reference to or from either regulatory supervisory bodies or the FRC, but that menu could be extended to include reference to or from those bodies.
The FRC is undergoing restructuring, and its disciplinary powers may be extended, which is part of the review’s scope. Should that happen, the Minister’s assurance about what tends to happen may not obtain as clearly, or it may be qualified in some other way. In that case, he might be better indicating that subject to the ongoing review of the FRC, he will keep the matter under consideration and that he is prepared to fine-tune the schedule later in the Bill’s proceedings, if that would improve the proposals.

Christopher Leslie: I agree with my hon. Friend the Member for Foyle that some concerns need to be addressed. I understand that the Minister is aware of where he thinks the line between the FRC and the FCA is drawn, but some issues remain, and I do not think it is outrageous to ask him to at least encourage those organisations, as he has done with other parts of the Bill, to try to co-ordinate matters offline—outside legislation, informally—in a memorandum of understanding or whatever agreement they want to have. It is a pity that the Minister is not able to encourage them to do so, because it is not a massively difficult thing to ask. However, I hear what the Minister has said and I will not vote against schedule 13. It is broadly uncontroversial, but that was my principal concern.

Question put and agreed to.

Schedule 13 accordingly ordered to stand part of the Bill.

Clause 40  - Provisions about consumer protection and competition

Christopher Leslie: I beg to move amendment 169, in clause 40, page 124, line 31, at end insert—
‘(2) A designated consumer body may make a complaint to the PRA that a feature, or combination of features, of the market for with-profits insurance policies is, or appears to be, significantly damaging the interests of consumers.’.

Edward Leigh: With this it will be convenient to discuss the following: amendment 170, in clause 40, page 126, line 23, after ‘FCA’, insert ‘or PRA’.
Amendment 171, in clause 40, page 126, line 32, after ‘the FCA’s’, insert ‘or the PRA’s’.

Christopher Leslie: Clause 40 deals with significant issues of consumer protection, and the amendments in the group are designed to address the designation of the Prudential Regulation Authority as a recipient for super-complaints concerning with-profits policies. At present, there is no mechanism for making a super-complaint regarding the market, despite the problems in the past. The Committee will be aware that, unusually, the Minister has decided that the PRA, which is not ordinarily a conduct regulator, should have responsibility for the conduct regulation of the with-profits sector. Twenty-five million customers are affected by that area of the market, and there are £330 billion-worth of with-profits policies in the market, so there are significant consumer questions for the country at large and all our constituents.
Transferring the responsibilities for conduct to the PRA without simultaneously giving consumer bodies the ability to call conduct issues to account in the manner of a super-complaint, could be a serious mistake. I do not understand why the Minister would design an arrangement that would prevent the voices of consumers being properly explored in the way that they ought to be given the size of the market.
Placing the regulation of with-profit policies in the PRA seems to exclude the possibility of super-complaints about them being made. Taking into account the chequered history of some of those policies and the regulatory failures, we would have expected that the Minister would take the opportunity to improve the regulatory arrangements and ensure that the customer voice is heard. I am sure that he understands the logic behind the amendments in the group, so I will not labour the point.

Mark Hoban: We discussed consumer representation on the PRA in respect of with-profits policies on amendments 66 and 67 and clause 5. As with the previous amendments, I am afraid that I am sceptical that the amendments tabled are the right way to ensure appropriate consumer representation. However, I agree that the super-complaints power should be wide enough to cover complaints about with-profits policies, and clause 40 is sufficiently broad to allow that.
I do not agree that the PRA should be designated as a recipient of the super-complaints. The FCA will be the best equipped of the two authorities to receive super-complaints on with-profits policies; it will have the consumer and competition-focused objectives and the expertise and established administrative capacity to process and respond to incoming super-complaints effectively. In those cases where the FCA decides that the appropriate response to the super-complaint is to give advice or information to the PRA, the FCA will have to make that clear to the respondent in its response.
There is a mechanism for super-complaints about with-profits policies to be made to the FCA, and the FCA can give information or advice to the PRA on the regulation of such policies, but that does not mean that consumer groups cannot raise complaints about them with the PRA. The FCA is best placed to respond to the consumer protection and competition problems raised by super-complaints.

Christopher Leslie: I do not understand. I am slightly confused by the logic. The Minister is essentially saying that even though he wants to give with-profits conduct powers to the PRA, the process of super-complaint arrangements—I suppose this is one concession, which is welcome—should be allowed, but only to the FCA. Will there not be a problem, as the FCA is not actually the body with responsibility for making decisions about that regulation? He says that the FCA will be able to make representations to the PRA. Is that not a circuitous process? Would it not be far simpler to allow the super-complaint process to be made to the body responsible for regulating in that area? I do not see why he needs to bypass the arrangements in such a circuitous way.

Mark Hoban: It is right that the regulator with primary responsibility for consumer protection should receive all super-complaints. The FCA will have an established relationship with consumer groups and will have appropriate processes and procedures in place enabling it better to understand the context within which individual super-complaints are submitted. The structure is there. It is clear to me from my reading of clause 40 that super-complaints can and will include super-complaints about with-profits policy, but the measures are partly about the efficient and effective use of resources. The FCA will have the process in place to deal with super-complaints. It cannot just make representations, as the hon. Gentleman said; it can give information and advice to the PRA, which is much stronger. I think that that is the right balance. It is not a straightforward issue to get right, but our approach is consistent with how we want to deal with it.

Christopher Leslie: I am sorry that the Minister did not take the amendment away to consider and chew over in a bit more detail. I also object slightly to the idea that the FCA is the body with primary responsibility and an understanding of the relationship with consumers when, in this particular area, he has carved out a responsibility for the PRA in respect of the conduct regulation of with-profit policies. It is not beyond the wit of the PRA to understand representations from consumers and so forth. I get a sense that the PRA is being built up as an aloof ivory tower of an institution that is not supposed to get its hands dirty with tiresome things such as consumers.

Mark Durkan: Does my hon. Friend not share my disappointment that the Minister’s line on this amendment, as on others, seems to be that the PRA strapline will be “Consumers aren’t us—no way, ever, at all”?

Christopher Leslie: As ever, my hon. Friend manages to sum up succinctly a point that I would have taken many more words to convey. [ Interruption. ] The Whip agrees with at least that point of mine, which is something, I suppose.
My point is simple. It is necessary to have clear, simple, straightforward lines of accountability. Giving consumer bodies the capability to make super-complaints directly to the PRA does not seem excessively onerous on the PRA. It is not impossible for the PRA to understand consumer issues. It could certainly consult with the FCA if it did not recognise what a consumer looked like or found it difficult to talk to one in a particular way, but if the Minister carves out a responsibility for the PRA, he must accept the downstream consequences of that decision. Therefore, we ought to press the amendment.

Question put, That the amendment be made.

The Committee divided: Ayes 8, Noes 9.

Question accordingly negatived.

Christopher Leslie: I beg to move amendment 127, in clause40,page124,line32,leave out ‘a’ and insert ‘an independent and impartial’.

Edward Leigh: With this it will be convenient to discuss amendment 128, in clause40,page125,line6,leave out ‘given in section 1G’ and insert ‘any natural person who is acting for purposes which are outside his trade, business, craft or profession’.

Christopher Leslie: These amendments relate to the super-complaints power and the ability of consumer organisations to make those complaints rather than a myriad of individual complaints having to be made simultaneously. Under the amendment, super-complaints powers can be granted only to bodies that genuinely represent consumers.
Amendment 127 seeks to nuance the definition of designated bodies to include the words “impartial and independent”. Amendment 128 seeks to change the definition of the term “consumer” in the Bill to include only consumers under the common definition of the term.
Under the Enterprise Act 2002, super-complaints can be made by designated consumer groups, such as Which?—the Consumers Association—and Consumer Focus, and are an excellent tool for raising issues of mass consumer detriment. That is something that the previous Administration introduced, and it has been a useful device. Significant changes and improvements have been made to defend the best interests of the consumer. As a result, I pay tribute to the Minister for his recent intervention in response to the super-complaint from Which? In deciding to ban excessive debt and credit card charges, he highlighted the lack of transparency and the high levels of the charges that cost consumers millions of pounds a year.
When the Minister first proposed making the FCA a recipient of super-complaints, he stated that such powers should be given to organisations that work on the front line with consumers and that often see evidence of significant detriment before the regulator.
In its report, the pre-legislative scrutiny Committee highlighted that by making the FCA a recipient of super-complaints, it would protect consumers from failing products and markets. However, under the Bill, the definitions of the concept of consumer are very wide. Crucially, the Bill states that a designated consumer body may make a complaint to the FCA that a feature, or set of features, is
“significantly damaging the interests of consumers.”
A designated consumer body could mean a body representing firms. Trade bodies, for example, could also argue that they are able to make super-complaints. Such a view is not in the spirit of the original intentions of those changes in the 2000 Act.
If we were to get into a situation in which super-complaint powers were used as a tool for industry representatives rather than consumer representatives, inappropriate representations could be made to regulators about concerns that might potentially affect firms rather than consumers. That would not be a proper use of the super-complaints procedure. A number of genuine consumer bodies are concerned about that; they do not want their capabilities to be diluted by broadening out the definitions in such a way. I am sure that the Minister will be aware of their concerns. The legislation must be tight enough to ensure that we do not fall into that trap and that we can defend the virtues of the current super-complaints arrangements as well as possible.

Yvonne Fovargue: I do not have much to add. My hon. Friend has put the case succinctly. If the measure were to refer to trade bodies, I am concerned that the individual firm would be reported to the ombudsman, who may make a ruling. What may happen then is that if the company is unhappy it goes to its trade body which would then say, “Yes, we’ll go to the FCA and see if we can get a better result.” This ombudsman ping pong would not be in the interests of consumers at all. It may even water down the use of the ombudsman. I am concerned that it needs to stay with properly representative, independent and impartial bodies that represent consumers, who see enough complaints to take a justifiable view on whether the complaints are justified and whether a super-complaint is needed. It should not just be a vehicle for trade bodies to represent their members in a different way.

Mark Hoban: Indeed. I am happy to agree with the point that the hon. Lady has made. The super-complaints mechanism should not be available to bodies whose purpose is to represent professional businesses and professional investors. The problem we have is that, given the breadth of the definition of consumer in new section 1G, the drafting does not deliver the effect that we want, which is for this not to be used by trade bodies and professional investors. Therefore I will revise the definition of consumer in new section 234B so that it excludes representatives of authorised firms, to put the issue beyond doubt. Amendment 128 was tabled by the hon. Member for Makerfield so she should be commended. [ Interruption. ] It just shows what a sharp, short speech can do to change the Government’s mind.
On amendment 127, the designated consumer bodies should indeed be independent of the FCA. The Bill requires the Treasury to develop and publish criteria that it will apply in designating consumer bodies and that, rather than the Bill, is the best place to spell out in more detail what should be taken into account in deciding who should be designated. Through non-legislative means we are dealing with the point in amendment 127 and I have committed to come back, hopefully on Report, to amend the definition in new section 234B.

Christopher Leslie: What a triumph for my hon. Friend the Member for Makerfield. I must take a leaf out of her book. Her powers of persuasion are clearly considerable.

Greg Hands: There is a lesson there.

Christopher Leslie: There is indeed a lesson there. Certainly if any of my hon. Friends wish to propose other amendments perhaps they should do so before the Committee stage is over. I welcome the Minister’s commitment to come back on Report. It is very positive that he wants to do that. It is not my place to withdraw amendments in the name of my hon. Friend, but I would be happy to do so, as I suspect she would be too, in response to the Minister’s willingness to consider the matter further. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Christopher Leslie: I beg to move amendment 168, in clause 40, page 127, leave out lines 13 to 37.

Edward Leigh: With this it will be convenient to discuss amendment 172, in clause 40, page 127, line 37, at end insert—
“234H Power of FCA to make request to Competition Commission
(1) Part 131 of the Enterprise Act 2002 is amended as follows.
(2) The FCA may, subject to subsection (4) of section 131 of the Enterprise Act 2002, make a reference to the Commission if the FCA has reasonable grounds for suspecting that any feature, or combination of features, of a market for financial services in the United Kingdom prevents, restricts or distorts competition in connection with the supply or acquisition of any financial services in the United Kingdom or a part of the United Kingdom.’.”

Christopher Leslie: These amendments need to go hand in hand because amendment 168 removes something from the Bill and amendment 172 substitutes something else. I may need to double check the line references in the amendment as they may be wrong. I will call them probing amendments just to cover myself. They relate to the power of the FCA to make a request to the Office of Fair Trading to consider in turn whether a case should be referred on to the Competition Commission. Our view is that the FCA ought to have the power to make reference directly to the Competition Commission on certain matters.
The pre-legislative scrutiny Committee made its views known in its report when it recommended that the Government review their decision on the FCA’s competition powers. It said:
“The FCA should be given concurrent powers alongside the OFT to make market investigation references to the Competition Commission. The FCA will need greater competition powers to achieve its recommended objective than is currently set out in the draft Bill.”
The Minister has already set out the competition objective that the FCA will receive. At the time, the Minister responded to the pre-legislative scrutiny recommendations by saying he did not feel there was a need to change the provision in the Bill that allowed the FCA to make that referral to the OFT and on to the Competition Commission. That is a pity, given that the financial services sector probably deserves to be treated in a similar way to other regulators, where they do have concurrent powers with the OFT. For example, Ofcom has a concurrent power with the OFT to make a reference to the Competition Commission, as do Ofgem, the Northern Ireland Authority for Energy Regulation, the Director General of Water Services, the Office of Rail Regulation, the Civil Aviation Authority and so on. It would not be excessive to allow the FCA to have a similar concurrent power, given that it is a fairly normal arrangement for regulators of other sectors and industries. Will the Minister explain why he has chosen to go down this particular route with the powers for the FCA?

Mark Hoban: This topic has triggered a significant amount of debate. It is a sign of the complexity of that debate that we have two different recommendations. The pre-legislative scrutiny Committee recommended that the FCA should have the concurrency power; the Treasury Committee said the case had not been made, and it should be reviewed. We ultimately followed the line put down by the Treasury Committee.
I shall explain a little why that is the case. I want to be clear about the respective roles of the two regulators. The FCA, as the lead regulator for the financial services, has been given a mandate to use its regulatory powers and expertise to promote effective competition in the interests of consumers. The OFT, as a central competition authority, has powers and expertise, for example, in relation to the enforcement of competition law, that can be used across a number of markets, including financial services. Both regulators have an important role to play in promoting effective competition. Clearly the FCA needs a mechanism to engage the OFT if it is to ensure that the OFT’s powers and expertise are effectively brought to bear in the financial services sector.
Let me be clear about how the FCA will be able to use its power of referral to the OFT in support of its new competition role—the provisions that this amendment would take out. The measure will not prevent the FCA taking the lead in addressing competition issues, but will respect the expertise and powers of the competition authorities. The FCA’s competition objective will require it to keep the markets it regulates under review. Of course, it may perform its own competition analyses as part of that. The FCA will set its own agenda for promoting competition in the financial services sector and will be able to identify issues that it considers may require intervention by the competition authorities. On an appropriate referral from the FCA the OFT may have the information that allows it to take action, for example to launch a market investigation reference, almost immediately. It will also be able to consider whether the Competition Act 1998 enforcement action would be more appropriate.
There are clear benefits to the referral mechanism in terms of enabling the OFT in its role as a central competition authority to bring its expertise and experience to bear in taking action to address restrictions or distortions of competition. Those are pragmatic arrangements that reflect the fact that the FCA will have no track record or expertise in making market investigation references or the capacity to enforce competition law itself. As such, it will be essential that it has a mechanism to draw on the expertise and powers of the OFT.
Turning to amendment 172 and the issue of who should be able to make a market investigation reference to the Competition Commission, the underlying concern must be with the quality of competition scrutiny and the regulation the markets will receive. Given the expertise and experience of competition law, and of the MIR process that the OFT will have, it makes sense for the responsibility for making a MIR to rest with the OFT. I have discussed the issue, in particular, with John Fingleton, the director of the OFT. In other areas where there are concurrency powers, the OFT has stepped back and allowed the sectoral regulator to fill the space. I am worried that it will suddenly step back from its involvement in the financial services sector before the FCA has carved out its role.
The OFT clearly has an important programme, such as following up the recommendations of the Independent Commission on Banking, which we talked about earlier. I am sure that the Committee is aware that the Joint Committee, which scrutinised the Bill, recommended that the FCA should be given concurrent MIR powers. The Treasury Committee suggested that the case had not been made.
I have thought carefully about the matter, and it is not easy to determine. These are relatively uncharted waters for the FSA, and we want it to take an important role in promoting the competition of financial services. However, at the moment my judgment is that we should leave the MIR powers with the OFT, but should review the matter when the competition powers of the FSA are bedded in, and once there is a track record.
As an addendum, the hon. Member for Nottingham East referred to some of the sectoral regulators with MIR powers. They also have the powers to enforce the Competition Act 1998. The FCA does not have those powers, so it is not right to say that, by giving the FCA MIR powers, it will align it with other sectoral regulators as it does not have powers under the Competition Act 1998.

Christopher Leslie: I am glad that the Minister is thinking deeply about such questions. That is positive, as is the fact that he will keep the matter under review. That is the least that we should expect, and letting the issues bed in would be one way to achieve it. I am still not entirely convinced that now is not the opportunity to step in to create a Financial Conduct Authority that has the full suite of powers necessary to do the job expected of it when representing consumers, and to ensure that competition is properly enforced.
The hon. Gentleman said that a debate is going on. We should probably side more with those who would give the FCA the powers so that we have one organisation tackling significant market issues such as the PPI debacle. That would allow us to get on and deal with the difficulties without the substantial additional delay introduced through circuitous referral to another body. There is some virtue in putting the FCA in a shape in which it can step up to the plate and have the in-house capability properly to understand market investigation issues. Faster implementation of remedies would reduce harm to consumers and would make for better decisions in the market more generally.
At least the Minister has said that he wants to keep the matter under review, and we shall probably return to it on another date. Although the proposals are important, and they have not been addressed by the Minister’s comments, for the sake of making progress, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Christopher Leslie: We have already discussed aspects of the important clause 40, which relates to complaints and references to the FCA about competition matters that adversely affect the interests of consumers. We have already discussed the arrangements for super-complaints, and it is welcome that the Financial Ombudsman Service or other authorised persons also have the ability to make references to the FCA, which is a positive change in proposed new section 234C. However, I have a specific question about the timing in new section 234D, which sets out that the FCA
“must within 90 days after the day on which it receives a complaint…publish a response stating how it proposes to deal with the complaint”
and whether it will take action. Of course, it can simply report back and say that it does not believe that the complaint has any merit. Under proposed new section 234E, a body may have to wait 90 days to be told that the FCA judges their complaint to be
“frivolous, vexatious, or…made in bad faith.”
It should not take three months to arrive at such a judgment, especially when it comes to frivolous or vexatious complaints. Why is that 90-day period needed? Does the Minister expect that three-month period to be used rarely? Would it not be more ambitious for the FCA to have a target of speedier responses? That may already exist, but if so, I am not familiar with it. Does the Minister have any insight into the standards of timeliness that the FCA hopes to achieve?

Lorely Burt: I want to raise a point that follows on from the hon. Gentleman’s comments about the 90 days. As I understand it, the Treasury can vary the 90-day period, and I am sure that if the FCA does not need to take 90 days to decide that something is frivolous, it certainly will not take 90 days.
However, I am worried about whether the clause is strong enough to ensure that the FCA takes action. It can make a report, but there is no further constraint on it to implement the actions that it intends to take. Does the Minister agree that the FCA should take action to remedy, to mitigate, or to prevent any detrimental effect on consumers and to effect a comprehensive solution to the consumer detriment as soon as is reasonably practical? I cannot see anything in the Bill that makes the FCA take action within any specific timetable. Proposed new section 234D(1)(b) says that the FCA must state,
“if it has decided to take action, what action it proposes to take.”
However, there is no time limit. Citizens Advice has expressed concern that that lack of requirement could enable the FCA not to kick something into the long grass, but to take an unfortunate amount of time when consumers are suffering. It took six years for the payment protection insurance scandal or debacle—however you want to describe it—to be resolved. Will the Minister assure me that the FCA will deal with consumer problems in a timely and effective way?

Mark Hoban: It is a significant advance in consumer protection to allow super-complaints to be made to the FCA, and we wanted to follow the provisions set out in the Enterprise Act 2002. One factor that led us to bring these provisions forward was that the Which? super-complaint on ISAs had to go to the OFT, and people wondered why it did not go to the FSA. That is the thinking behind including the measure in the Bill. We sought to replicate the provisions of the 2002 Act. The Act does not stipulate a time, so in the case of a report-back mechanism for the OFT, for example, we have simply moved the provisions across. That is why there is no requirement to report back in a specific period of time on the action taken. Of course, when the FCA does respond to super-complaints, it must say whether it has decided to take any action, or no action at all. If it has decided to take action, it has to say what action it proposes to take. Significant accountability measures are built in, whether it is scrutiny by the TSC, or public pressure by Citizens Advice or others, to ensure that it delivers on that plan. If the FCA were to take action in response to a complaint, there is no shortage of pressure points.
The hon. Member for Nottingham East referred to the way in which I responded to the Which? super-complaint on debit and credit card surcharges. It encouraged me to a sweet response by inundating my office with cupcakes. A number of tools are available to people to put pressure on regulators or Government to reach a speedy conclusion and act. I am not encouraging a supply of cupcakes to my office, I hasten to add.
On the timing trigger for vexatious or frivolous complaints, or complaints made in bad faith, there might be such a situation, but a 90-day period would allow the regulator to go back to the super-complainant—if that is the right word—and tease out of them the basis of their complaint. That would guide them in the right direction to see whether there is any merit in the complaint, rather than automatically dismissing it out of hand as frivolous, vexatious or made in bad faith. There are reasons for having time limits in place, but I assure my hon. Friend the Member for Solihull that, although the Bill does not provide for reporting back on action taken, any sensible regulator will recognise that once it has said that it will take action, it will act, and it will be scrutinised if it fails to do so.

Question put and agreed to.

Clause 40 accordingly ordered to stand part of the Bill.

Clause 41 ordered to stand part of the Bill.

Schedule 14  - Amendments of Part 24 of FSMA 2000: insolvency

Question proposed,That the schedule be the Fourteenth schedule to the Bill.

Christopher Leslie: Schedule 14 contains a number of changes in respect of the insolvency proceedings, as applied in respect of the PRA-authorised persons, to both the FCA and the PRA. Many of the changes are important. I want to ask the Minister about the provision in the schedule that gives the PRA power to overrule and stop the FCA by way of a veto from bringing insolvency proceedings against a PRA-authorised entity. Various organisations have already voiced their concerns about such provisions. The Investment Management Association’s briefing to the Treasury Committee in October stated:
“In the exercise of the veto power by the PRA over the FCA, the Financial Policy Committee (FPC) should be consulted. Public interest publication of the veto decision and the reasons for it should be for HM Treasury and not the PRA to decide.”
I can see the logic of that point. The Consumers Association—Which?—stated in its briefing last month, in February, that the veto of the PRA over the FCA should automatically trigger an independent inquiry. Which? states:
“The use of the veto should be seen as a complete regulatory failure and should have the necessary consequences attached to it…We are very concerned about the PRA’s power to veto an FCA decision which would lead to a firm or group of firms failing. To permit the PRA to overrule the FCA sends a dangerous message to the industry that only firms which are small enough to fail without causing damage to financial stability will be forced to bear the full consequences of mistreating consumers.”
The concept of “too big to fail” risks being extended to “too big to be forced to treat your customers fairly”, and that is an important point that Which? makes.
We have heard that the FCA is supposedly an independent free-standing body, but time and again, when we examine the details of the Bill, we see that the PRA has very significant powers to overrule the FCA and to determine its policies and approach. This is all part of that extended arm of the Bank of England operating in that particular way.
Will the Minister explain under what circumstances a veto of the PRA over the FCA would be initiated? In this case, it would be in relation to insolvency proceedings. Will he also say why the use of that veto should not trigger an independent inquiry, as Which? has suggested? Furthermore, will he explain why a PRA veto in that way would not necessarily be seen as a regulatory failure? If there is that level of dispute between those regulators, surely there is a need for public disclosure and public discussion of why the PRA veto is being used.

Mark Hoban: To help the hon. Gentleman, I must say that the schedule does not contain a specific power of veto. However—just to help him out again—there is, of course, the general power of veto that we debated a few sittings ago, which applies in this situation. We established in those earlier discussions that there may be circumstances in which the PRA would want to veto a decision taken by the FCA. I think that we agreed at that point that these were important issues and that there should be disclosure when that veto has been exercised. What I committed to—in one of my many concessions on this Bill—was that I would go back and consider whether the PRA should consult the Treasury on the use of the veto; not so much prior to exercising its veto, but about whether the details of the veto should be published. There was an issue about commercial sensitivity. That same concession applies to this situation.
These are important powers that we need to think about. There is a risk, for example, that an action by the FCA might result in a disorderly failure and that would actually be to the detriment of both consumers and the firm. The PRA and the FCA would need to agree a course of action together that will enable both regulators to act consistently with their objectives. If the regulators cannot agree, the PRA’s view must prevail, but we need to have transparency about the use of the veto, which, as I have said, is an issue to which I will return.
I will just make one other point. Which? proposes that the exercise of a veto should count as a regulatory failure and should automatically trigger an investigation. There is a very high threshold for the use of the veto; it should not be used routinely. Because we do not expect it to be used routinely, we think that when it is used a copy of the direction should be given to the Treasury, and the Treasury should be required to lay that direction before Parliament. There is quite a lot of transparency around the use of the veto. That general use of the veto can apply in this schedule, although there is no specific veto power in it.

Christopher Leslie: That is very helpful, and I did not need to send any cupcakes to the Minister’s office or pique his culinary interest in any other way. It was helpful for the Minister to make that clarification. Indeed, he is making a massive concession to allow the PRA to consult the Treasury and possibly to consider publication. I do not know whether the PRA veto could extend to the insolvency provisions, even though they are not mentioned in the schedule. I take the Minister’s point about the schedule, and I welcome his clarification.

Question put and agreed to.

Schedule 14 accordingly agreed to.

Clause 42  - The consumer financial education body

Question proposed, That the clause stand part of the Bill.

Christopher Leslie: The clause is about the consumer financial education body. We will discuss the specific issues concerning the money advice service of the consumer financial education body in considering schedule 15, but I want to take this opportunity to regret that the clause does not contain provisions to extend financial education to the compulsory part of the national curriculum. That subject has been widely debated in recent times and it would have been ideal, if we are discussing the creation of and legislative arrangements around a consumer financial education body, to have taken the opportunity to think about how the school curriculum should properly give an opportunity for young people to learn about basic money management and basic savings and borrowing arrangements in society. After all, those will be some of the biggest decisions they will take later in their lives.
To establish a consumer financial education body as though it will singly have the capability to educate the public more widely, simply through the auspices of that organisation, misses a massive opportunity to use our school system and our educational system more broadly. The Minister will know that Martin Lewis of “Money Saving Expert” fame has an e-petition on the Downing street website with more than 118,000 signatures. The issue has been debated on the Floor of the House and the point ought to have been accepted by the Government by now.

Mark Garnier: The hon. Gentleman will be well aware that I am acutely interested in the point he is making, because I am vice-chairman of the all-party group on financial education for young people. Can he think of a precedent whereby a Bill unrelated to education, such as a financial regulation Bill, contains references to the education curriculum?

Christopher Leslie: I do not think it would be impossible for the Bill to cover the Treasury’s part in this terrain. Perhaps the Minister could have had a provision broadly to review the work of the Treasury with other Departments in promulgating wider financial education. That would have been a welcome addition to the clause. The hon. Member for Wyre Forest may have a point about education legislation, but it does not preclude amending other Acts. This Bill amends five or six Acts of Parliament, so it would not have been impossible to frame it in that way.
If we step back from the process, our constituents will see that we are debating a Financial Services Bill, and I am sure they would anticipate our discussing the extent to which we can educate future consumers so that they are savvy and literate and can properly grasp what charges will fall on their shoulders if they engage in financial transactions. It is always astonishing—many of the financial and debt advice organisations constantly find this—to discover the phenomenal amount of ignorance among sections of the public about pensions, mortgages and savings products. We urgently need to get a grip of that issue.

Mark Garnier: The hon. Gentleman will be grateful on that basis to learn that the all-party parliamentary group has done a great deal of work on this area and is making a lot of progress towards achieving the goals he is after, without amending this Bill.

Christopher Leslie: Indeed, that is one way of making a change. I commend the fantastic work the hon. Gentleman’s all-party group is doing. It is one of the biggest—if not the biggest—all-party groups in Parliament. Given that the Chancellor of the Exchequer said before the election that he supports financial education in schools, it does not fall entirely without the ambit of the Treasury’s responsibilities. The hon. Gentleman will know that Departments that want to make changes often come up against the resistance of certain Treasury Ministers who, let’s face it, have a habit of saying no to even the simplest and most unobjectionable suggestions. I want the Minister to put on the record where we stand in the continuum of progressing with financial education.

Fabian Hamilton: While paying tribute to the excellent work of the hon. Member for Wyre Forest in the field of financial education, does my hon. Friend agree that we sometimes tend to over-compartmentalise when considering legislation? His points on ensuring that future consumers are far better educated in financial matters are borne out by the “Financial Education & the Curriculum” inquiry of September 2011, in which 90% of teachers agreed that financial education should be integrated into the curriculum.

Christopher Leslie: Absolutely. That is the most important point. Schools are not precluded from covering some of these issues, but they have any number of obligations placed upon them. Members of Parliament have been surveyed on this issue in recent times, during Backbench Business Committee discussions and elsewhere, and financial education is the sort of thing that ought to have happened. The previous Administration proposed to change the curriculum arrangements in law just before the last general election, but I understand that the current Education Secretary did not want to adopt the proposal, so the matter was dropped in the wash-up. We hope it will be resuscitated.

David Rutley: Notwithstanding the comments of the hon. Member for Leeds North East and the general support on both sides of the House for financial education, does the hon. Member for Nottingham East not see that the Bill has to be about addressing financial service regulation? That is its purpose. Throughout our discussion of many of the issues raised by Opposition Members, there has been a tendency to widen out the Bill more and more and to get away from its obvious focus.

Christopher Leslie: I understand the hon. Gentleman’s point, but we have not tabled an amendment on this clause. The discussion is about creating a consumer financial education body, and I do not think it sufficient to vest the serious task of broadening awareness of financial products in that one body. A properly framed clause on consumer financial education ought to make some reference to schooling and the wider curriculum. Some 90% of teenagers worry about cash daily, and 25% of teenagers think that an overdraft is an easy way to spend more than they earn. As my hon. Friend the Member for Leeds North East alluded to, not only teachers, but two thirds of the public think that financial lessons would have helped them to address today’s financial challenges.
There is wide consensus on this issue, and I want to press the Minister. When will there be progress on financial education? When will legislative proposals be introduced? When will he properly respond to the excellent work of the all-party group? We want some dates and timelines, please.

Mark Hoban: The hon. Gentleman is from a tradition that sees the imperial reach of the Treasury everywhere. He thinks we should intervene in the fine detail of other Departments’ policies, but financial education is a matter for the Department for Education, which has responsibility for setting the curriculum in England. The Secretary of State for Education, my right hon. Friend the Member for Surrey Heath (Michael Gove) and the Minister of State, Department for Education, my hon. Friend the Member for Bognor Regis and Littlehampton (Mr Gibb) have responsibility for those areas.
There are currently many financial education initiatives in schools, sponsored partly by the Personal Finance Education Group and partly by individual institutions. We have asked the Money Advice Service to take a strategic overview of the initiatives in schools and colleges so that we can ensure best value for money. Some support is in place for such provision. The area is not covered directly by the Bill, but the Money Advice Service has taken it on in the context of strategic overview, which I welcome. However, the matter is properly for my right hon. and hon. Friends.
 Mark Durkan  rose—

Mark Hoban: The hon. Member for Foyle seeks to intervene—this is, of course, a devolved matter. I am happy to give way.

Mark Durkan: I thank the Minister giving way and for sharply pre-empting my point. It would not be appropriate to have curriculum reference in the provision for precisely that reason, but that does not make the issue any less important. Bearing in mind his comments, does he agree that financial education at curriculum level could be usefully taken forward by the British-Irish Council, which covers eight jurisdictions in these islands, all of which have a different experience of and involvement in consumer finance?

Mark Hoban: That strays beyond the narrow confines of even this Bill. I am sure the hon. Gentleman will find ways of promoting that agenda. As I said, we asked the Money Advice Service to provide co-ordination and strategic oversight of what is happening in schools, which is helpful.
We need to tackle literacy and numeracy issues. According to an FSA survey, 50% of people do not understand what 50% means, Mr Leigh.

Edward Leigh: What does it mean?

Mark Hoban: It means half, to my mind. That survey demonstrates that by tackling some of the literacy and numeracy issues we face, we would open the way not only to financial education but to a range of educational matters.

Christopher Leslie: Will the Minister give way?

Mark Hoban: I will give way, but—[ Interruption. ]

Christopher Leslie: I am sorry if the Minister is slightly frustrated by my gentle asking of a question. I specifically want to extract from him the current Government policy on financial education in the curriculum. Following our debates, where are we with the proposal? When will the change be made? Can he give us a timeline? When are we likely to see reform?

Mark Hoban: As I often say in these debates, the matter is under review. My frustration is not caused by not wishing to answer the hon. Gentleman’s questions, but we need to make progress on what is a helpful part of the Bill, and I am sure he will want to discuss the next schedule too. I have said as much as I can on the topic, and I shall write to him only if I have any more to add.

Question put and agreed to.

Clause 42 accordingly ordered to stand part of the Bill.

Schedule 15  - The consumer financial education body

Amendment made: 111,page270,line37, schedule 15, leave out ‘to the Treasury’.—(Mr Hoban.)

Question proposed, That the schedule, as amended, be the Fifteenth schedule to the Bill.

Christopher Leslie: The Minister is ready to shout his assent to the schedule even before he has heard my words— I might persuade him of some further concessions, cupcakes notwithstanding.
The creation of the Money Advice Service has been under the spotlight in recent months and in the past year. Essentially, schedule 15 provides the nuts and bolts of the arrangements for how that organisation will work in law. The Minister will know that concerns have been voiced about the nature of the strategy being pursued in the Money Advice Service. When we debated clause 5, we said that we wanted the consumer financial education bodies to give proper attention to the lower income groups in society—the most vulnerable and those in greatest need. We want the Money Advice Service to prioritise some of its work and activities to focus on their needs and concerns, rather than simply spreading all its efforts across all sections of society equally. Clearly there are individuals for whom money advice is necessary, but it will not perhaps be about bread and butter issues, whereas for others, small mistakes will add up to very significant and potentially detrimental impacts on their lives. We need the Money Advice Service to focus properly on the needs of those who most need advice. I want to press the Minister on that. What scope is there for ensuring that the Money Advice Service takes that attitude?
Does the Minister think that the Money Advice Service is pursuing the right strategy at the moment? It is putting much of its resource into web-based activities and not so much into face-to-face advice services. In recent months, there have been significant changes at the Money Advice Service—some significant redundancies—and it has seen a large expenditure shift to advertising and marketing as opposed to expert in-house money advice capability.

Yvonne Fovargue: Does my hon. Friend share my concern that by reviewing the delivery of debt advice, the Money Advice Service may be moving towards the delivery of such advice, particularly now that it is co-ordinating it? Given that there are agencies that have been delivering it very effectively for a considerable period, it is a concern.

Christopher Leslie: Indeed, and my hon. Friend and the hon. Member for Solihull—I am amazed that I remembered who she represents, but it is a very important constituency—have raised that important point before. There are questions hanging over the strategy of the Money Advice Service, the answers to which need to be clarified.
I have had a couple of surprises from asking the Minister parliamentary questions about the Money Advice Service. I was surprised that the pay and remuneration of senior management is so very large and significant. I think that it is more than ironic that we have a money advice service with very significantly remunerated senior executives—there were bonuses of more than £100,000 on top of the salaries of the senior management team in 2010-11. What surprised me most was where the Money Advice Service sits in terms of its duty as a public body. He told me in one written answer that it is not subject to the Freedom of Information Act, because it is not classified as a public body in that way. I find that surprising. It should be in statue; it has very important responsibilities, and if we do not have money education in the classroom, we are putting a lot of responsibilities on its shoulders.
Trying to find out what the Money Advice Service’s strategy is and how well it is working, it is clear that there is a lot of secrecy and obfuscation about what is happening and where it is going with its strategy. For example, it has a health check service, which is good in principle, but to what extent is it evaluated? Does the Minister concede that it should be a public body subject to the Freedom of Information Act? Will he act to ensure that we have proper scrutiny of how the management are proceeding in their strategy, that the strategy is opened to more scrutiny and, in particular, that we get the management focused on inclusivity?

Yvonne Fovargue: Does my hon. Friend share my concern that some of the debt advice strategy appears to be to see many more people—150% more—with the money available, which is a great aim, but it is lowering the level to gateway advice? In effect, it will be seeing more people, but advising less.

Christopher Leslie: Indeed, and that focuses more on the quantity than the quality of advice. My hon. Friend makes an important point. It is covered in schedule 15. Those are my questions to the Minister.

Mark Hoban: Let me be clear: the hon. Gentleman says that the Money Advice Service should be a public body, but the arrangements for setting up the service are set out in the Financial Services Act 2010. That was an Act introduced by the previous Government who set in place the governance arrangements.
There is an issue here. The Money Advice Service needs to think about how it uses its budget best. It needs to reach as many people as possible. Let us leave debt advice to one side. My concern is that if it just focuses on face-to-face advice, it would not get the reach it needs. What it recognises in its model is that there are three channels: web, telephone and face-to-face. As part of its broader money advice responsibilities it commissions face-to-face advice. That is an important part of it. We need to make sure that as many people as possible have access to its information; have access to things like the financial health check; are able to use the comparison tables for ISAs; and are able to use comparison tables for annuities. There needs to be a significant content on its website but people need to know it is there.
We have spent a lot of time over the course of the last few weeks talking about how people need to be aware of free services that are available and bemoaning the advertising that claims management companies do on daytime television. The reason why claims management companies are at the front of people’s minds is because they advertise. If we want people to access the Money Advice Service’s website, they need to know it is there. We need to find ways of promoting it to people so that they visit it. The worst thing in the world is to have a beautifully produced website with no visitors. It needs to drive traffic to its website and that requires a degree of promotion.
The Money Advice Service introduced its future plans for debt advice, under the slogan “A new approach to debt advice: a better deal for everyone”, on its website on 22 February 2012. It will publish its business plan on debt advice at the end of this month. Its intention is clear. It is a commissioner, not a provider, particularly when it comes to face-to-face debt advice. There are lots of other services there. It is ensuring that the financial services firms, rather than taxpayers, pay for the debt advice and that there are people there to provide that advice.
We have spent some time talking about the Money Advice Service. It is important that it gets its message across. It is an independent body. It is funded by a levy on the financial services industry and the Financial Services Authority is responsible for approving its business plan. In schedule 15 we have ensured that it falls under the remit of the National Audit Office and it will be audited by the Comptroller and Auditor General. I think that will help to reassure people that the money it uses, which comes from the private sector, is properly spent.

Question put and agreed to.

Schedule 15, as amended,accordingly agreed to.

Clause 43 ordered to stand part of the Bill.

Schedule 16  - Provision of financial services by members of the professions

Question proposed, That this schedule be the Sixteenth schedule to the Bill.

Christopher Leslie: This brings us to a new part of the Bill relating to the regulation and the work of the professions and the professional bodies. The general phrase used in clause 43 is “members of the professions”, but it is not defined until we get to this schedule. The existing provisions of the Financial Services and Markets Act provide that members of a profession may, subject to certain conditions, carry on a regulated activity without authorisation, but where the activity is incidental to the provision of professional services, which are supervised and regulated by a professional body recognised by the Treasury. This is a broadly sensible provision making sure that there is not duplication where professional bodies have certain capabilities and jurisdictions. We already discussed this in a tangential way in relation to actuaries and auditors in an earlier part of the Bill. Those professional organisations can undertake certain functions. My question to the Minister relates to the threshold at which the FCA takes over the role from the professional bodies. He made a point earlier in respect of the auditor and actuary bodies under the auspices of the Financial Reporting Council. He said that in those circumstances, those bodies did not have the resources and capabilities to undertake particular enforcement, and at that point the FCA kicked in. I want a sense from the Minister of the point at which incidental activities become services that should be regulated directly by the FCA, rather than by designated professional bodies.
Do we anywhere have references, guidelines, memorandums of understanding to set out clearly when the FCA will take over certain activities and when the professional bodies will do so? That is the gist of my points. What are the threshold conditions we are looking at? With those areas that can sometimes fall into both professional body and FCA regulation, when do those issues stop being blurred? Is there any way of setting out whether they are black or white? I will be grateful if the Minister will elaborate on that point.

Mark Hoban: This is an area where there is not a clear threshold. Members of a profession may, subject to conditions, carry on certain regulated activities without authorisation in cases where the activity is incidental to the provision of professional services, which are supervised and regulated by a professional body designated by the Treasury. There are no strict criteria or memorandum of understanding I can point to. If I were a chartered accountant—which I am—providing investment management advice, and that was my sole task, I suspect I would cease to be regulated for that purpose by the Institute of Chartered Accountants, but would be regulated by the FCA. Because the remit of regulation can be quite broad in some respects, there may be some things that an accountant does—maybe advising a business man on general tax affairs—that leak out into a bit of investment advice or advice on finance. Clearly the amount of advice that has been given is incidental to the provision of a regulated professional service. I do not think there is a hard and fast rule. If the hon. Gentleman has a specific concern, perhaps he could write to me and I will respond in more detail.

Christopher Leslie: I do not know that we need to enter into correspondence on these matters; it would be better to deal with them in Committee. I was looking for light to be shone on how the respective roles of the professional bodies and the FCA are likely to co-exist. There is a rather broad-ranging responsibility on the FCA to keep itself informed of the work of the professional bodies. What does the Minister expect the FCA to do to fulfil that responsibility to keep itself informed? Is it going to have regular monthly or quarterly discussions with the professional bodies? What sort of relationship are we talking about? Is an extra memorandum of understanding being generated? What costs would be involved?

Mark Hoban: The FCA will have to determine how frequently it speaks to the professional bodies. It is up to the FCA to decide the appropriate nature of the relationship in order to keep them properly informed. To disappoint the hon. Gentleman, there is not an MOU on this. I do not have a great deal to add. I reassure the Committee that there are certain functions that clearly people cannot do without authorisation by the FCA, even if they are a member of a recognised professional body. That includes insurance and taking deposits, so constraints do apply.

Question accordingly agreed to.

Schedule 16 agreed to.

Clause 44  - International obligations

Question proposed, That the clause stand part of the Bill.

Christopher Leslie: The clause might be of interest to members of the Conservative party, in particular, but I am sure that it will be of interest to all hon. Members generally. It relates to the ability of the European Union to overrule UK domestic regulatory arrangements. Although it seems a fairly short clause, it deals with international obligations that the Financial Services and Markets Act 2000 describes more widely. The clause ultimately gives responsibility to the Treasury and, in some respects, to other organisations to make bodies aware when they are infringing on European Union rules and laws. It gives powers to the Treasury to enforce those EU obligations.
I am surprised that the Minister has not referred to the MOU on international co-ordination under the clause, given that it would have been the place to discuss the need to co-ordinate the European supervisory arrangements with the new regulators under the Bill. I have already made my views known to the hon. Gentleman about the mismatch between constructing the regulatory architecture in such a way that it causes confusion when trying to influence those European decisions. That is relevant to the clause because, if the domestic regulators are hobbled in their ability to shape and steer the European agenda, all they will have to do is simply to implement and transpose obligations that have been decided elsewhere rather than here in the United Kingdom.
We need a regulatory system with the ability to shape the regulatory agenda determined in Brussels, but the set of structures under the Bill are not shaped up to take the leadership role that should be in place. Will the Minister explain why there is no reference to the MOU on international co-ordination under the clause?

Mark Hoban: We have been over the international MOU, and I do not have anything more to add to what I said then.

Christopher Leslie: The Minister is taking a Trappist view of European issues. The matter is possibly something that we will have to raise at a future sitting of the European Scrutiny Committee.

Question put and agreed to.

Clause 44 ordered to stand part of the Bill.

Clause 45  - Interpretation of FSMA 2000

Question proposed, That the clause stand part of the Bill.

Christopher Leslie: The clause contains several technical changes to the interpretation of the Financial Services and Markets Act provisions. They are generally uncontroversial, but there are a couple of anomalies. The Minister might prefer to write to me than deal with them straight away and, if so, that will be fine.
Can the hon. Gentleman explain why the definition of money laundering rules has been omitted from the provisions? What is the definition of money laundering under the Bill supposed to be? Under other parts of the Bill, such as clause 27, and section 402 of FSMA, money laundering is defined under schedule 7 of the Counter-Terrorism Act 2008. However, that is not the case under the Bill, which refers to article 1 of the European Communities directive 2005/6/EC. A couple of issues have been raised about the definition of money laundering, but I wanted to raise that significant, technical point.
My other point relates to proposed new section 421ZA of FSMA 2000, which defines “immediate group”. The new definition in the Bill is nearly identical to that provided in the FSA handbook; it includes all of paragraph (1) of the FSA handbook glossary definition, but not paragraph (2). That is missing from the clause. Will the Minister clarify whether I have missed something, or whether there is an omission?

Mark Hoban: I will write.

Christopher Leslie: I am grateful for the Minister’s succinct commitment.

Edward Leigh: If we always had such brief comments, we would be going very quickly.

Question put and agreed to.

Clause 45 accordingly ordered to stand part of the Bill.

Clause 46  - Parliamentary control of statutory instruments

Question proposed, That the clause stand part of the Bill.

Christopher Leslie: The Minister will be aware of my general concerns about the need for proper, thorough parliamentary accountability of the Bill’s changes. Although we welcome the extension of the use of the affirmative procedure to many of the order-making powers in the Bill, in my view, in some cases, the affirmative procedure is insufficient, given the detailed and technical nature of many of the changes that the orders could make; they could have a profound impact on constituents and businesses alike.
I reiterate our view that we should consider a super-affirmative procedure, at least in the House of Commons, to ensure that new regulatory provisions—particularly macro-prudential powers emanating from the Financial Policy Committee—are fully scrutinised by a Standing Committee. That could be done by a financial services regulation scrutiny Committee, akin to the European Scrutiny Committee, which would provide a proper, thorough way of vetting and scrutinising regulations as they come through.
I know that it is always difficult to discuss the kind of hypothetical scenarios in which such orders might come up, but my worry is that some future orders will be of extreme public or business concern. In the past, we have seen significant interest in the retail distribution review and other changes that the regulators have brought forward. If sufficient safeguards do not allow for the venting of steam and heat in debate—if Parliament does not feel able properly to address the questions—we will be in danger of seeing primary legislative amendments and changes bodged, or bolted on to relevant Bills further down the line. It would be far better to design a safety valve process, to allow proper scrutiny and accountability for important financial changes, at this stage in the Bill, and clause 46 relates to parliamentary control of statutory instruments.
I urge the Minister to establish a dialogue somehow—perhaps on a cross-party basis, or however these things are done—so that we can look at procedures in the House. It is not possible to legislate for how the House scrutinises orders; it is for the House to do that in its Standing Orders. Notwithstanding that, the affirmative procedure is insufficient for the level of scrutiny that these important matters deserve.

Mark Hoban: We discussed the super-affirmative process in relation to macro-prudential tools, so I do not intend to go through that debate again.
The clause applies the affirmative procedure to a number of new powers. On the issue of parliamentary scrutiny, there is no legislative vehicle, for example, with the RDR. It is a rule by the FSA, but if the hon. Gentleman wants Parliament to be a quasi-regulator, he should table amendments to that effect. Opportunities exist for the FSA to be held to account; the Treasury Committee does a very good job of that. We have had two Adjournment debates on the retail distribution review, and I would be very happy to have a Westminster Hall debate on something like Arch Cru. There are plenty of opportunities to hold debates on significant regulatory changes, so that the House can express its views. Those mechanisms are already there within Parliament.

Question put and agreed to.

Clause 46 accordingly ordered to stand part of the Bill.

Clause 47  - Mutual societies: power to transfer functions

Christopher Leslie: I beg to move amendment 162, in clause47,page130,line36,at end insert—
‘(f) providing for any function of the FSA in respect of the Registry of friendly societies to be transferred to a registrar established at the Registrar of Companies.’.

Edward Leigh: With this it will be convenient to discuss the following: amendment 163, in clause47,page131, line1,leave out
‘both the FCA and PRA’
and insert
‘the Registry of friendly societies established at the Registrar of Companies or to any of the FCA and PRA and the registry of friendly societies at the Registrar of Companies’.
Amendment 164, in clause48,page132,line4,leave out
‘to the FCA and the PRA’
and insert
‘the Registrar of Companies or to the FCA, the PRA and the Registrar of Companies’.

Christopher Leslie: Clause 47 relates to mutual societies, and I know that some of my hon. Friends are concerned about the treatment of the non-plc sector when it comes to financial regulation. Mutual and building societies, and the friendly society sector in particular, sometimes find that the regulators do not treat their business model in a way that reflects their particular concerns. It is therefore important that we take some time to look at the provisions that relate to mutual societies.
The amendments would help to put the corporate form of mutual societies on a somewhat closer footing to those of other businesses. The amendments particularly relate to the registrar of mutual societies, which is properly known as the registry of friendly societies. That function has been exercised by the Financial Services Authority for a number of years, and credit must be given to the FSA for bringing the registry out of the 19th century and into its present form. Unlike Companies House, where all filings can be done online, at the registry of friendly societies—located at the FSA—it still takes 48 hours to get a search of certain records of a mutual society, whereas a search at Companies House is a simple five-minute process.
The point of the amendments is simple. Mutual societies deserve a modern registry and one that can support and promote the mutual society model. The amendments would provide for any function of the FSA in respect of the registry of friendly societies to be transferred to a registrar established at the registry of companies. The fees payable by mutuals are insufficient to cover the costs of a registry, but they are more expensive than the registry of companies, and the community interest companies regulator plays that role in respect of mutuals and is co-located within the registry of companies. That is the model that we are suggesting in the amendments.
I hope that the Minister will understand why we are suggesting that the arrangements need to be modernised. Friendly societies and mutuals should have access to basic registry capabilities in a similar way to companies.

Mark Hoban: The problem with the amendments is that the registry of friendly societies does not actually exist, so there is nothing to transfer. However, I think the hon. Gentleman’s point is about the registration of financial mutuals, of which friendly societies are a subset. I have taken onboard the hon. Gentleman’s point about the modernisation of registration, and I think that his point is not about it moving to Companies House, but rather that some of the technology that Companies House uses to enable searches and so on should be adopted by the FSA. That point was well made and I will raise it with the FSA.

Christopher Leslie: That is helpful. I do not necessarily want to prescribe where such functions sit; it is about ensuring that mutuals have access to modern arrangements. After having raised the issue with the FSA, I would be grateful if the Minister will drop us a short note to let us know its reaction, and I am sure that he will do so.
 Mr Hoban  indicated assent.

Christopher Leslie: The Minister has indicated that he will, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Christopher Leslie: We are talking about the Treasury’s ability to amend, by order, legislation on mutual societies for a number of different purposes. I have a few questions. I assume that FCA and PRA responsibilities for the functions that we are discussing are broadly the same as those for the plc sector, and that there are no anomalies for the mutual sector, as opposed to the non-mutual sector. Will the Minister clarify whether there will be a simple transfer of functions from the FSA to the FCA or PRA, or whether we need to be aware of other provisions buried in the clause? It would be useful if he could outline how the clause might affect the mutual sector. It would be useful to hear whether the clause is simply technical. I often find that there are new provisions in such arrangements, so it would be useful if the Minister could point them out.

Mark Durkan: The Minister will probably pre-empt me, but clause 47 introduces provisions for credit unions in Northern Ireland. Subsection (2)(g) lists the Credit Unions (Northern Ireland) Order 1985 as legislation that the Treasury may amend by order. The 1985 order is, of course, specifically included in the Northern Ireland Act 1998 established by the Good Friday agreement as part of the remit of devolution. Will the Minister clarify that the clause is not wholly amending or writing across the 1998 Act’s inclusion of aspects of the 1985 order within the window of devolution?
My query particularly relates to subsection (4), which provides for
“any function of a Northern Ireland department or the Registrar of Credit Unions for Northern Ireland to be transferred to the FCA or the PRA, or to both”.
Subsection (4) also provides for
“any function of a Northern Ireland department or the Registrar of Credit Unions…which relates to the determination of disputes to be exercisable instead by a court.”
I seek the Minister’s assurance that that is purely an enabling provision that will allow the transfer of functions on an agreed and acceptable basis, and will not automatically dictate such a transfer.
The Minister should be aware that when the Northern Ireland Assembly considered how to enable credit unions in Northern Ireland to offer a wider range of services, the Assembly recognised that the best way to do so was for those credit unions to be regulated by the FSA. That was the clear preference of the relevant Assembly committee, which I chaired. The committee’s report, which was adopted unanimously across the Assembly, stated that, even with the regulatory function’s transfer to the FSA, the registration function would remain as devolved function, albeit one that people regarded as nominal or token. The credit union movement—both the Ulster Federation of Credit Unions and the Irish League of Credit Unions—insisted on a residual window of interest and engagement between the credit union movement in Northern Ireland and the devolved authority.
Given that the registration function and the regulation function do not have to be conducted on an ad idem basis, and given that there is a differential, will the Minister assure us that, if the case for observing that differential can still be made, it will not be automatically prejudiced by this clause standing part of the Bill? There is some concern there.
The credit union movement went along with the recommendations that came through the Assembly and the relevant Assembly committee on the understanding that there would still be that window of contact and responsibility at a devolved level. I understand that the Department in Northern Ireland has come to a different view on whether it wants to continue the registration function. That may be the Department’s view, but as I understand it from talking to members of the Assembly committee, it has not revised its previous view or the unanimous recorded view of the Assembly. It still wants to allow an appropriate registration function to remain with a Northern Ireland Department. Will the Minister assure us that the clause is just enabling changes to be made that are agreed and necessary, without imposing any changes that are not yet agreed?

Mark Hoban: With the exception of subsection (4) of the clause, I can assure the hon. Member for Nottingham East that all it does is apply to mutuals the provisions that would apply to companies. It is a relatively straightforward approach.
On the issue raised by the hon. Member for Foyle, there are a number of matters in the Bill that relate to Northern Ireland, and this is the most obvious one. We would, of course, not bring in these provisions until we had secured the consent of the Northern Ireland Assembly. It is difficult to separate registration from regulation and it is a challenge, but we are able to move only with the consent of the Assembly.

Mark Durkan: When the inquiry was conducted— I chaired it in the Northern Ireland Assembly—the Northern Ireland Department that housed the registration and regulation function was comfortable with the differentiation. The evidence from the Treasury suggested that it was comfortable with the differentiation and believed that that was a constructive way of accommodating the different interests. The FSA agreed with that. If they all agreed, and their agreement was one of the things that informed the report to the Assembly, people are at a loss to understand why it has been suggested that it is impossible to separate the two functions.

Mark Hoban: No one said it was impossible. If those parties wished to proceed, as I have said and as the explanatory notes make clear, they could do so with the consent of the Assembly.

Question put and agreed to.

Clause 47 accordingly ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Greg Hands.)

Adjourned till Tuesday 20 March at Four o’clock.